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Coordination of tax policies toward inward foreign direct investment

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  • Amy Jocelyn Glass
  • Kamal Saggi

Abstract

type="main" xml:lang="en"> We study competition for foreign direct investment (FDI) between host countries and the implications of tax policy coordination between them. By reducing its tax on multinational production, a host country can attract additional FDI, some of which is diverted from other host countries. The shift in FDI causes host wages to rise while wages elsewhere fall. The host country with the lower natural attractiveness for FDI (absent intervention) adopts a smaller tax on multinational production. Coordination between hosts eliminates the FDI diversion effect and leads them to impose a harmonized FDI tax that is larger than their non-cooperative tax levels.

Suggested Citation

  • Amy Jocelyn Glass & Kamal Saggi, 2014. "Coordination of tax policies toward inward foreign direct investment," International Journal of Economic Theory, The International Society for Economic Theory, vol. 10(1), pages 91-106, March.
    • Handle: RePEc:bla:ijethy:v:10:y:2014:i:1:p:91-106
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    Cited by:

    1. Kenji Fujiwara, 2015. "Trade and FDI Liberalization in an Oligopolistic Model: Partial versus General Equilibrium Effects," Discussion Paper Series 132, School of Economics, Kwansei Gakuin University, revised Jul 2015.
    2. Kenji Fujiwara, 2015. "Trade and FDI Liberalization in Multiple Oligopolies," Discussion Paper Series 131, School of Economics, Kwansei Gakuin University, revised Jul 2015.

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